The Accounting Standards Board (ASB) has today published a Reporting Statement entitled ‘Retirement Benefits - Disclosures’, which is designed to promote greater transparency in financial reporting for defined benefit pension schemes.

As a best practice guide, the Reporting Statement is intended to have persuasive rather than mandatory force. Its recommendations aim to assist the users of financial statements in understanding the risks and rewards, and funding obligations arising from defined benefit (DB) schemes.

The Reporting Statement sets out six principles to be considered when providing disclosures for DB schemes in the financial statements:

1. the relationship between the entity and trustees (managers) of the defined benefit scheme;
2. the principal assumptions used to measure scheme liabilities;
3. the sensitivity of the principal assumptions used to measure the scheme liabilities;
4. how the liabilities arising from defined benefit schemes are measured;
5. the future funding obligations in relation to defined benefit scheme; and
6. the nature and extent of the risks arising from financial instruments held by the defined benefit scheme.

The disclosures recommended in the Reporting Statement complement those set out in FRS 17 ‘Retirement Benefits’ (as amended December 2006) and IAS 19 ‘Employee Benefits’. The Reporting Statement may be applied by any entity (whether the entity applies UK or International Financial Reporting Standards) that operates a DB scheme.

The publication of the Reporting Statement today represents the completion of the ASB’s review of disclosures for DB schemes. The ASB commenced the review in early 2006 in light of concerns expressed by commentators, including investors, that financial statements did not contain sufficient information to allow users to adequately assess the risks.

In May 2006 the ASB published a Financial Reporting Exposure Draft (FRED) which proposed to amend the disclosure requirements of FRS 17 by replacing them with those of IAS 19, leading to increased convergence of the two standards. The FRED also set out a draft Reporting Statement. Respondents to the FRED were generally in agreement with the proposal to amend FRS 17.

They did, however, have some concerns about the draft Reporting Statement and the Board has taken their views into consideration in the final version published today. In particular the Board has responded to comments regarding the recommendation to disclose the estimated buy-out cost of scheme liabilities. It is recommending disclosure of the buy-out amount where it is already made available to members and/or trustees of the scheme.

Announcing the publication, Ian Mackintosh, Chairman of the ASB, stated:

“The publication of the Reporting Statement today brings to a close the short-term review the Board has conducted into the disclosure needs for defined benefit schemes. The review has resulted in an amendment to FRS 17 improving the disclosure requirements of FRS 17 whilst bring them into line with the requirements of IAS 19.

“In addition the publication of the Reporting Statement provides any UK entity, whether applying International or UK Financial Reporting Standards, with a best practice guide. The guide aims to assist users by encouraging the disclosure of greater information regarding the risks and rewards of defined benefit schemes whilst allowing preparers the flexibility to provide disclosures that are appropriate to the risks their particular entity is exposed to.

The ASB, which has long been an international leader in the field of pensions accounting, is also continuing leading work on a research project which is a more fundamental review of the issues.”

1. In May 2006 the ASB issued for comment a Financial Reporting Exposure Draft (FRED) which set out a proposed amendment to FRS 17 ‘Retirement Benefits’ and a draft reporting statement ‘Retirement Benefits – Disclosures’. The ASB issued an amendment to FRS 17 on the 7 December 2006. (Press Notices 291 and 297). These documents can be found on the ASB’s website.
2. The ASB is an operating board of the Financial Reporting Council (FRC). The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy Investigation and Discipline Board) and by the Council. The Committee on Corporate Governance, whose members are drawn from the Council, assists it in its work on corporate governance.
3. The main role of the ASB is to issue accounting standards. The ASB collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) both in order to influence the development of international standards and in order to ensure that its standards are developed with due regard to international developments.
4. The ASB has up to ten Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of interests, are part-time.
5. The Reporting Statement can be downloaded, free of charge, from the website at www.frc.org.uk/asb. Hard copies of the Reporting Statement are available, price £2.50 post free from:
   
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6. Press enquiries should be addressed to Ian Mackintosh (Chairman) on 020 7492 2434, David Loweth (Technical Director and Secretary) on 020 7492 2420 or Michelle Crisp (Project Director) 020 7492 2432.